Trust types & which one saves tax — specific vs discretionary

1. Specific (determinate) vs discretionary — the tax fork

• Specific / determinate trust — the deed names each beneficiary and their fixed share. Income is taxed in the beneficiaries' own hands at their slab rates (Section 304, old 161). This is the income-splitting, tax-saving vehicle.
• Discretionary trust — trustees decide who gets how much. Maximum flexibility, but income is taxed at the Maximum Marginal Rate (~39%) (Section 307, old 164) — no exemption, no lower slabs. Fine for control/protection, poor for tax on income.

2. Revocable vs irrevocable

• Revocable — you can take the assets back → income clubbed with you (Section 97, old 61–63). No saving.
• Irrevocable — you give the assets up → the saving (and protection) actually works. Almost every tax-saving trust is irrevocable.

3. Who the beneficiaries are — the clubbing filter

Even a perfect specific trust can't beat clubbing: settle for a spouse or minor child and the income comes back to you (Section 96, old 64). Splitting works for major children, parents and other adult relatives.

Rule of thumb (for tax)

Irrevocable + specific + adult beneficiaries = income split to lower slabs. Want the deep mechanics? See how a family trust is taxed. Setting one up is covered in our trust set-up guide.